INTERNAL TRADE
Internal trade
Internal trade refers to the process of exchanging goods and services within the national boundaries of a country. In other words,
the buying and selling of goods and services within the domestic territory of a country is known as internal trade. Purchases of goods
from a local shop, a mall or an exhibition are all examples of internal trade. The government does not levy customs or import duties
on goods and services that are produced within the country for meeting the domestic demand.
Internal trade can be classified into the following two categories:
Wholesale trade
Buying and selling of goods and services in large quantities for the purpose of resale or intermediate use is referred to as wholesale
trade. Wholesalers acts as an important link between manufacturers and retailers. They purchase in bulk and sell in small lots to retailers.
Services to manufacturers:
1. Facilitating large scale production:Small orders from a variety of merchants are collected by wholesalers, who then transmit the pool
of orders on to manufacturers, who make bulk purchases.
2. Bearing risk: The wholesale merchants deal in good in their own name take delivery of the goods and keep the goods purchased in large
lots in their warehouses. They bear a variety of risks such as the risk of fall in prices, theft, pilferage, spoilage, fire etc.
3. Financial assistance: Cash payment is made generally, hence the manufacturers need not block their capital. Sometimes they also advance
money to the procedure for bulk orders placed by them.
4. Expert Advice: As the wholesalers are in direct contact with the retailers, they are in a position to advise the manufacturers about various
aspects including customers taste and preferences, market condition, competitive activities and the features referred by the buyer.
5. Help in marketing function: Release the manufactures from many of the marketing activities and enable them to concentrate on the
production activity. A large number of customers get their goods from retailers who in return have actually bought the goods from the
wholesaler.
6. Facilitate production continuity: Facilitate production continuity through purchasing the goods as and when these are produced and
storing them till the time these are demanded by retailers or consumers.
7. Storage: When goods are produced in factories, wholesalers declare delivery and store them in their godowns/ warehouses. They thus
provide time utility.
Service to retailers:
1. Availability of goods:So as to provide a diverse assortment of goods to its customers, the wholesalers provide the retailers with varied products
and services. Wholesalers hold the inventory of goods as well as handle the work of collecting goods from several producers thus relieving the
retailers of the same.
2. Marketing support: Wholesalers are responsible for a variety of marketing duties as well as providing support to retailers. The retailers are
benefited due to this as it helps them in increasing the demand for various new products.
3. Grant of credit: The wholesalers usually provide credit to their frequent customers. As a result, the retailer can run their firm with a modest
quantity of working cash.
4. Specialized knowledge: Wholesalers specialise on a single product line and have a good understanding of the market, which is further passed to
the retailers.
5. Risk sharing: Retailers can avoid the risk of pilferage, stockpiling, obsolescence, and demand fluctuations by purchasing small merchandisable quantities.
Retail trade
Buying of goods in large quantities from the wholesalers and selling them in small quantities to the ultimate consumers is known as retail
trade. Retailers serve as an important link between the producers and final consumers in the distribution of products and services.
Services to manufacturers and wholesaler
1. Help in distribution of goods: Provide help in the distribution of their product by making goods available to the final consumer who may
be scattered over a large geographic area. They thus provide place utility.
2. Personal selling: Personal selling by retailers relieves the producer of this activity and considerably assists them in the process of actualizing
product sales.
3. Enabling large scale operations: Enable them to operate at a relatively large-scale level and thereby fully concentrate on their other activities.
4. Collecting market information: Retailers serve as an important source of collecting market information about the tastes, preferences and
attitudes of customers which is useful in taking important marketing decisions.
5. Help in promotion: Manufacturers and distributors have to conduct various promotional activities in order to increase the sale of their
product. Retailers participate in these activities and promotes sales of product.
Services to consumers
1. Regular availability of products: There is a continuous and regular availability of various products produced by different manufacturers
which allows buyers to purchase things as and when they are needed.
2. New products information: Because of the shelf space, and display retail stores have, the retailers provide new product information, features,
etc. to the customers, thus directing their buying behavior.
3. Convenience in buying: The customers can buy goods in small quantities anywhere at any time, as the retail stores are available in every
residential area thus adding to customers convenience.
4. Wide selection: The retailers maintain stock of a variety of products of different manufacturers, thus enabling the consumer to make their
choice out of a wide selection of goods.
5. After Sales services: Services such as home delivery, delivery of spare parts etc. is also a merit of retail stores.
6. Provide credit facilities: Provide credit facilities to their regular customers, thus leading to high future sale prospects from the same customers.
Types of retailers
The different types of retailers are:
1. On the basis of size of business', retailers can be classified as
• Small retailers
• Medium retailers
• Large retailers
2. On the basis of 'type of ownership', they can be classified as
• Sole trader
• Partnership firm
• Cooperative store
• Company
3. On the basis of ‘merchandise offered,' they can be classified as
• Specialty store
• Supermarket
• Departmental store
4. On the basis of whether or not they have a 'fixed place of business, they can be classified as:
• Itinerant retailers
• Fixed shop retailers.
Itinerant Retailers
They do not have a fixed place of business to operate from. They keep on moving with their wares/goods from street to street or place
to place, in search of customers.
Following are the characteristics of itinerant retailers:
i. They are small traders operating with limited resources.
ii. They normally deal in consumer products of daily use such as toiletry products, fruits and vegetables, etc.
iii. The emphasis of such traders is to provide greater customer service by making the products available at the doorstep of the customers.
iv. They are forced to keep their limited inventory at their homes or at some other suitable place.
Types of Itinerant Retailers
1. Hawkers and Pedlars:They are traders who move around from place to place selling their goods. They usually carry their goods in a bag
or on a cart or a cycle or on animals. They can be seen on streets of residential areas, place of exhibition, outside schools and restaurants.
The following are the features of hawkers and pedlars:
• They sell their merchandise at the doorsteps of Consumers.
• They generally deal in non-standardised and low-value goods such as toys, vegetables, fruits, fabrics, snacks,ice-cream, etc.
• They bargain with customers and try to charge maximum possible price for their products.
• The products offered by them are generally not reliable in terms of quality and price.
2. Periodic Market Traders:These traders sell their articles on fixed days in different marketplaces. A special feature of these traders is
that their weekly market day is fixed. For example, Saturdays (Shani Bazaar) or Mondays (Som Bazaar), etc. These traders can deal in a particular
merchandise or they can be general traders. The following are the features of periodic market traders.
• These traders deal in low-priced consumer goods of daily use, such as readymade garments,fabrics, toys, etc. They cater to the requirements of
lower-income consumers.
• Their shops are temporary structures.
• They can also sell their goods in fairs and during festivals.
3. Street Traders/Pavement Vendors:These are those retailers who display their goods at street crossings or on pavements or in the
corridors of markets. They can also display their goods on railway platforms, bus stands, cinema halls, etc.
The following are the features of street traders/ pavement vendors:
• They sell goods of common use such as newspapers magazines, stationery items, readymade garments, etc.
• They deal in low-priced products.
• They do not change their place of business frequently.
4. Cheap Jacks:They are petty retailers who have independent shops, but of a temporary nature in residential colonies or business localities.
The following are the features of cheap jacks:
• They keep on changing their business from one locality to another, depending upon the potential of the area, However, change is not as
frequent as in the case of hawkers or market Traders.
• They deal in consumer items as well as services such as repair of watches, shoes, etc.
Fixed Shop Retailers
These are retail shops which maintain permanent establishment to sell their merchandise. Therefore, they do not move from place to place to
serve their customers.
Following are the characteristics of fixed shop retailers:
i. As compared to itinerant traders, they have greater resources and operate on a relatively large scale.
ii. These retailers may be dealing in different products, including consumer durables, as well as non-durables products.
iii. This category of retailers has greater credibility in the minds of customers and they are in a position to provide greater service to the customers.
Types of fixed shop retailers
On the basis of size of operations, fixed shop retailers are of following two types
1. Fixed Shop-Small Retailers:
These retailers operate from a fixed shop, but their area of operation is limited. They are of following types:
i. General Stores
These stores deal in items of daily use like groceries, confectionery, stationery, soft drinks, etc. They generally operate in residential areas and
satisfy the day to day needs of the consumers.
Following are the features of general stores:
• These have a large variety in each line of goods.
• These stores remain open for long hours at convenient timings.
• These stores extend credit to their customers.
ii. Single Line Stores/Specialty Shops
These stores deal in a general category product line. The product line may consist of readymade garments, textiles, medicines, shoes, stationery or books.
Following are the features of specialty shops:
• These retail stores specialize in the sale of a specific line of product. For example, a shopselling women accessories.
• These shops are located in a central place of the market, where a large number of customers can be attracted.
• They provide a wide choice to the customers in the selection of a particular line of goods.
iii. Street Stall Holders
The stalls of small vendors are commonly found at street crossings or other places where flow of traffic is heavy. They deal mainly in goods
of cheap variety like hosiery products, toys, soft drinks, etc.
Following are the features of street stall holders:
• They attract floating customers and provide convenient service to the customers in buying some of the items of their needs.
• They get their supplies from local suppliers, as well as, wholesalers.
• They operate on a small scale.
• They provide convenient service to the consumers.
iv. Second-hand Goods Shop
These shops sell second-hand goods of different kinds like furniture, books, clothes and other household articles. These shops are suitable for
consumers with modest means.
Following are the features of second-hand goods shop:
• The shops selling second-hand goods generally sell goods at low prices, but if it is dealing in rare objects of historical importance or antique
goods, Srb to then the price charged by them is high.
• The shops selling second-hand goods have no fixed location. They may be located at street crossings on in busy streets.
• The shops may operate from a table or atemporary structure (as in case of second-hand books) or it may have reasonable good structure
(as in case of shops selling second-hand furniture or automobiles). It can also operate through e-commerce (OLX.com).
2. Fixed Shop-Large Retailers met
These retailers operate from a fixed shop on a very large scale. Their area of operation is wide. They are of the following types:
1. Departmental stores
It is a large establishment offering a wide variety of products, classified into well-defined departments, "Akberally in Mumbai and 'Spencers'
in Chennai are examples of departmental stores, aimed at satisfying practically every customer's need under one roof. It has a number of
departments, each one confining its activities to a specific kind of product.
The following are the distinct features of departmental stores:
• These stores are centrally located so that they can cater to large number of customers.
• These stores try to maximise customer satisfaction by providing additional facilities such as restaurants, travel and information bureau,
free wi-fi zone, kids zone, rest rooms, etc.
• These stores cater to that segment of customers form whom price is secondary.
• The form of organisation for such stores is joint stock companies managed by Board of Directors.
• These stores purchase goods directly from the de manufacturers and maintain their own warehouses where goods are stored. Thus,
these stores combine the functions of retailing and selling.
These stores suffer from the following disadvantages:
• Lack of Personal Attention:Because of large scale operations, these stores are not able to give personal attention to each and every customer.
• High Operating Costs: Since these stores provide a number of additional services to their customers, therefore their operating costs are also high.
• High Possibility of Loss: These stores operate on large scale and incur high operating costs. Therefore, their exposure to risk is also high.
• Inconvenient Location:These stores are generally located in a central location. Customers encounter traffic problems while visiting these
stores. Also, it is not convenient for the purchase of goods that are needed at short notice.
3. Chain stores or multiple shops
They are networks of retail shops that are owned and operated by manufacturers or intermediaries. Under this type of arrangement,
a number of shops with similar appearance are established in localities, spread over different parts of the country. These shops normally
deal in standardized and branded consumer products, which have rapid sales turnover. For example, an outlet of Reebok.
These stores exhibit the following features:
• These shops are located in populous localities, so that customers can be served at a place near their residence.
• The manufacturing or procurement of merchandise for all the retail units is centralized.
• Each retail outlet is under the direct supervision of a Branch Manager, who is responsible for its day-to-day operations.
• All branches are controlled by the head office. The head office formulates policies and gets them implemented.
Advantages of Chain stores or multiple shops:
• Economies of scale
• Standardized products
• Public confidence
• Division of risk
• No, bad debts
Limitations of Chain stores or multiple shops:
• Limited variety
• Lack of personal touch
• Inflexibility
• Divided attention
• No facilities
4. Mail order houses/business
These are the retail outlets that sell their merchandise through mail. There is generally no direct personal contact between the buyers and the
sellers in this type of trading.
Advantages of Mail order house/business:
• Limited capital
• Convenience
• Wider market
• No, bad debts
• Elimination of middleman
Limitations of Mail order house/business:
• No personal contact
• No personal inspection
• Limited variety
• Postal delay
• Heavy advertising cost
5. Consumer Co-operative Store
It can be defined as “A voluntary association of persons based on co-operative principles by buying in common and selling in common”.
Advantages of ConsumerCo-operative Store:
• Reasonable prices
• Low operating cost
• Cash sales
• Economies of scale
• Benefits from government
Limitations of ConsumerCo-operative Store:
• Limited capital
• Inefficient management
• Lack of incentives
• Lack of storage facilities
6. Super-Markets
Super-markets are organized by co-operative societies as well as by private traders.A super-market is a large scale retail shop selling a wide
variety of consumer goods. They are more attractive to consumers because of wide variety, low price, self-service and huge collection of merchandise.
Features:
1. They are generally located at the central locations to secure high turnover.
2. They sell goods on cash basis only.
3. They deal in wide variety (complete line) of goods.
4. They operated on the self-service principles.
5. They have low sales overhead as no salesmen are employed.
Advantages of super-markets:
1. One roof, low cost:Super-markets offer a wide variety of products at low cost under one roof.They are not only convenient but also economical
to the buyers for making their purchases.
2. Wide Selection: Supermarkets keep wide variety of goods of different designs, colour etc.which enable the buyer to make better selection.
3. No bad debts:Sales are on cash basis, so there is no chance for bad debts.
4. Complete freedom to buyers:There is no sales-man.Buyer is free to take his decision.
5. Shopping convenience:All the required goods of daily need are available at one place.It save customer’s time and energy.
Disadvantages of super-markets:
1. No personal attention: Supermarket works on the principle of self service.The customers, therefore, do not get any personal attention at
the time of their purchase.
2. No credit:In supermarkets no credit facilities are made available to consumers.This restricts the purchasing power of buyers from such markets.
3. Huge capital expenditure:Establishment and running a supermarket requires huge investment.This can be successful only in big towns.
4. Difficulty of space: Large premises at central location are not available easily.It is not suitable for products which require personal selling.
7. Vending machines:
A vending machine is a new form of direct retailing. It is a machine operated by coins or tokens. The buyer inserts a coin or token in the
machine and receive a specific quantity of product from the machine.
Advantages of vending machines:
• Vending machines are useful for selling pre-packed items of low priced products, with uniform size and weight.
• As like ATM its working time is 24×7.
• It is very convenient for both buyer and seller.
Disadvantages of wending machines:
• Initial cost of the machine and its maintenance charges on regular basis and repair are quite high.
• Consumers can’t see the product before buying.
• Return of goods is impossible in case of vending machine.
Goods and services tax (GST)
GST is an indirect tax levied in India on the sale of goods and services. The GST is paid by consumers, but it is remitted to the government
by the businesses selling the goods and services.
GST was implemented on 1st July 2017 in India GST was introduced to replace multiple indirect taxes levied by State and Central Governments
in order to simplify the Indirect Tax System.
Following are the main features of GST:
i. GST will be applicable on the supply of goods and services as against the earlier concept of tax on the manufacturer of sale of goods or
provision of services.
ii. India has followed a dual GST model i.e. centre and O states will simultaneously levy tax on a common base.
iii. The GST levied by the centre is called Central GST (CGST) and the GST levied by the states (including union territories with own legislature)
is called State. GST (SGST). Union territories without legislature will levy Union Territory GST (UTGST). For inter-state supplies Integrated
Goods and Services, be Tax (GST) will be levied.
iv. GST is a destination-based concept as against the earlier origin based tax. It means tax would accrue to the state (or union territory) where
the consumption takes place.
v. Classification of a supply to be categorised as either supply of goods or supply of services for the purpose of levy of GST.
vi. The GST applies to all the goods other than alcoholic liquor for human consumption and five petroleum products-petroleum crude, motor
spirit (petrol), High Speed Diesel (HSD), natural gas and Aviation Turbine Fuel (ATF).
vii. The list of exempted goods and services are common for the centre and the states.
viii. states like north-east and hilly states) in a financial year have been exempted from tax.
ix. Person doing business in more than one state require separate registration in each state under GST. Person having multiple business
verticals within a state may also require separate registration.
x. Small taxpayers with an aggregate turnover of ₹ 100 lakhs (₹ 75 lakhs for North Eastern states and Himachal Pradesh) in a financial
year shall be eligible for composition key i.e. a taxpayer shall pay tax as a fixed percentage of his turnover during the year without the
benefit of Input Tax Credit (ITC).
Main Documents Used in Internal Trade
The following are the main documents used in the Internal trade.
1. Invoice: In case of credit purchases, a statement is supplied by the seller of goods in which he gives particulars of goods purchased
by buyer such as quantity, quality, rate, total value, sales tax, trade discount, etc. It is also called a Bill or Memo. Buyer gets information
all about the amount he has to pay to the seller from Invoice only.
2. Pro-Forma Invoice: The statement (or forwarding letter) containing the details of goods consigned from consigner to consignee is
known as a Pro-forma Invoice. It gives the particulars as regards quantity, quality, price and expenses incurred on the goods consigned.
In case of consignment, consignee is an agent of consigner who is supposed to sell goods on behalf of consigner and this statement/proforma
invoice is only for his information. It is also known as interim invoice.
3. Debit Note: It refers to a letter or note which is sent by the buyer to the seller stating that his (seller’s) account has been debited by the
amount mentioned in note on account of goods returned herewith. It states the quantity, rate, value and the reasons for the return of goods.
4. Credit Note: It refers to a letter or note which is sent by the seller to the buyer stating that his account has been credited by the mentioned
amount on account of acceptance of his claim about the goods returned by him.
5. Lorry Receipt: It refers to a receipt issued by the Transport Company for goods accepted by it for sending from one place to another. It
is also known as Transport Receipt (TR) and Bilty.
6. Railway Receipt: It refers to a receipt issued by the Railways for goods accepted for sending from one station to another.
Terms of Trade
The following are the main terms used in the trade.
1. Cash on delivery (COD): It refers to a type of transaction in which payment for goods or services is made at the time of delivery.
If the buyer is unable to make payment when the goods or services are delivered, then it will be returned to the seller.
2. Free on Board or Free on Rail (FoB or FOR): It refers to a contract between the seller and the buyer in which all the expenses up to the
point of delivery to a carrier (it may be a ship, rail, lorry, etc.) are to be borne by seller.
3. Cost, Insurance and Freight (CFF): It is the price of goods which includes not only the cost of goods but also the insurance and freight
charges payable on goods up to destination port.
4. E&OE (Errors and Omissions Excepted): It refers to that term which is used in trade documents to say that mistakes and things that
have been forgotten should be taken into account. This term is used in an attempt to reduce legal liability for incorrect or incomplete
information supplied in a document such as price list, invoice, cash memo, quotation etc.
Role of chambers of commerce and industry in promotion of internal trade
A chamber of commerce is a voluntary association of businessmen belonging to different traders and industries. Even professional experts
like chartered accountants, financers and other engaged in business in a particular locality, religion or country can also become the members
of chamber of commerce. Its main objective is to promote the general business interests of all the members and to faster the growth of commerce
and industry in a particular locality, religion or country.
Following are the main functions of chamber of commerce and Industry.
1. Conducting research and collecting statistics and other information about business and economy.
2. Providing technical, legal, and other useful information and advice to its members.
3. Publishing books, magazines and journal of business interest.
4. Making arrangement for education an training of members. Some chambers even conduct commercial examinations and award diplomas.
5. Arranging industrial exhibitions, trade fairs etc. in order to promote trade.
6. Advising the government in matters concerning industrial and economic development of the region.
7. Issuing certificate of origin to exporters.
8. Representation of business interest and grievances before the government.
9. Providing a forum for discussing the common problems of business community.
10. Acting as arbitrators for solving problems and disputes among the members.